West Los Angeles thrift seized by state may have engaged in fraudulent activities.

West Los Angeles thrift seized by state may have engaged in fraudulent activities

First Network Savings Bank, seized last month by the Department of Savings and Loan, appears to have engaged in a number of "fraudulent" transactions, an industry source said.

The troubled West Los Angeles S&L, with assets of approximately $410 million, was taken over by the department after its chairman, Carl Rheuban, sent a letter to the department suggesting the FDIC be appointed conservator.

"It's the first time I know of that someone sent that kind of letter," said William D. Davis, deputy commissioner of the department.

"The department had plans to seize the institution anyway; the letter accelerated the plans," Davis added.

The exact nature of the transactions in question were not disclosed, but a source said the matters are unusually serious.

The day before he sent the letter, Rheuban, a majority shareholder of the company, fired all the other members of the board, reported George Hale, president and CEO of First Network.

The fired directors were Hale; Jerry Rappaport, an attorney with an office in Encino; Doug Nehls, a consultant; and Martin Lipsic, an attorney.

The department seized the thrift on Jan. 22, the afternoon of the day it received Rheuban's letter, Davis said. Rheuban was immediately removed as chairman. He could not be reached for comment.

Rheuban had dealings with Calmark Holding Corp., a subsidiary of which recently defaulted on $100 million of bonds.

Rheuban's spokesman, Ron Rogers, said he could not comment on First Network because "this may involve litigation he (Rheuban) may take in the future."

"The problems at the company were rather severe; I haven't yet totally assessed the situation," said Hale, hired as president and CEO in November because of his reputation as an expert on turning around troubled thrifts. He was recently connected with Universal Savings & Loan, based in Orange, which was briefly under department conservatorship in 1987.

According to Davis, "It was unusual how their loans were structured."

Hale described the problems as part and parcel with the nature of the institution's business. It was a wholesale operation with only one office until 1988, when it acquired six-branch Tahoe Savings & Loan, he said. Most of its loan portfolio was large commercial real estate and construction loans, according to Hale. "The $450 million on the balance sheet is misleading because the company was involved in many joint ventures and had outstanding letters of credit," Hale added. These joint ventures and letters of credit would suggest the balance sheet understated the company's potential liability.

Rheuban has a reputation for not showing up at business meetings, an investment banker said. "People began to schedule meetings at his (Rheuban's) own house so that he would show up; I went to such a meeting and he didn't even show up to that one," the investment banker added.

A self-made multi-millionaire, Rheuban is an attorney turned real estate developer. He is known as a "heavy hitter" to Jewish charities.

A private individual, Rheuban was described by Sal Serrantino, president of Santa Monica-based California Research Corp., as "very confident but not blatantly arrogant. He did not strike me as a sneaky type." Rheuban is also described as young, probably in his upper 30's.